Economic harm from war with Hezbollah would be staggering, says expert


Further escalation in hostilities could result in staggering economic losses amounting to up to NIS 30 billion, according to Reichman University’s Aaron Institute for Economic Policy and MIND Israel.

The report highlighted an urgent need for decisive action from policymakers to mitigate the potential fallout.

The Aaron Institute’s research delves into two potential conflict scenarios: one involving Gaza, and the other envisioning a full-scale war with Hezbollah. In the former, the economic forecast for 2023 anticipates a growth rate of 1.5%, significantly below the pre-war estimate of 3.0% by the Bank of Israel.

In 2024, the institute predicts a growth rate ranging between 0% and 1%, potentially causing a decline of 1-2% in per capita income.

Smoke rises on the Lebanese side near the border with Israel, amid ongoing cross-border hostilities between Hezbollah and Israeli forces, as seen from Tyre, southern Lebanon December 2, 2023 (credit: AZIZ TAHER/REUTERS)

The cost of fighting on another front

In the latter scenario, a full-scale war with Hezbollah is outlined, projecting a month-long freeze of most activities in the North, resulting in a 70% drop in employment.

The analysis for the fourth quarter of 2023 mirrors the basic scenario, but the forecast for economic growth in 2024 is grim, predicting negative 2% growth. This estimate takes into account the anticipated annual loss of production due to temporary worker absence and reserve force recruitment.

The economic impact of a northern campaign is estimated to be NIS 111b.  until the end of 2024. This figure includes NIS 28b. in security expenditures; NIS 37b. for the economic plan and defense payments; NIS 13b. for recovery and property damage, and NIS 3b. for civilian expenditures excluding health and welfare expenses. The loss of income is estimated at NIS 30b.

Even with the inclusion of US military aid, surplus property tax funds, budget deviations, and earmarked funds, the institute predicts a bleak outlook for the projected GDP in 2024 under the northern front scenario.